Pricing Amazon products is the most difficult task while running your business. Because it is directly related to the cost of your product and it impacts your profit margins, you cannot sell without having the knowledge of the optimum product pricing.
Pricing is influenced by many factors but let’s get an insight on the three largest elements that directly impact your success as an FBA seller: Competition, customers, and cost.
Why does everything on Amazon come down to Pricing your Products on Amazon?
Is pricing your products easy? Without knowing the perfect strategy for pricing your product, can you end up your business with a net profit?
The statistics according to a study published in a Harvard Business Review say that 1% price improvement can lead to an increased profit by 11.1%.
All the other functions contribute to the success of your business but at the end of the day, the fastest way for any company to grab maximum profit is to price its product correctly.
Amazon Business is not an exception. 70% of the sales go to the sellers on the first page. Correct pricing can help dominate your product niche and provide you the best seller rank.
In this article, we are going to discuss the three most important elements that every seller must consider while determining their product prices:
Amazon is an online platform where there are multiple sellers to sell the same product. If you are careless about the pricing and other sellers have a slightly lower price than your product, your sales will significantly fall down. That is why researching your pricing is important.
There may be cases where some sellers have mastered the pricing strategies and priced their products in a just and equitable manner. Similarly, there are other sellers that may have marked their selling price bringing the figures from out of the blue. This type of pricing doesn’t match the target audience and lacks customer attraction.
You can look into the product reviews and product rating that is the result of poor pricing. You will get ideas of how you can price your product by taking them as a reference.
If you want to price your product correctly, you must check whether the product you place to sell on Amazon gives equal or more value than the your competitors are providing.
You can always check your competitor’s product value by going beyond your process and looking into what the buyers are talking about your competitor’s. It can be checked by looking into the product review section under each product.
If you find out that your product offers more value than that of your competitors, you can price higher than your competitors without any second thought. However, it will be a work of effort and high technique to always prove that value by displaying your worth in the product title and descriptions category.
You should have a different approach if your product gives an equal value to that of the competitors. Under such circumstances, it is advisable to price your product a little lower than your competitors. Having said that, you must also consider the fact that constantly reducing the price in the name of competition can lead to a price war leading you to the end of the list.
Calculating the cost of your product is the most important factor for deciding the correct pricing for your products. But, it’s a really tough call calculating the cost that can range from manufacturing the cost of your product to shipping cost to take your products to the FBA center.
If you want your price to be calculated correctly you must consider the following cost factors accurately:
Storage Cost: This cost includes the cost of inventory if you are fulfilling your cost by yourself or use the FBA service.
Raw materials: Raw materials are any materials that are used in the manufacture of the complete product that you are selling. This cost includes the cost of materials like wood, plastic, clothes, etc.
Labor Cost: It includes the cost of human resources that you have to use to engage people to manufacture.
Shipping Cost: It includes the cost of transporting your goods from your supplier to your inventory storage center or an fulfillment center.
Assembly Cost: This cost includes the cost of assimilating different products that the raw materials made to bring the final product to the customers which again includes the labor costs and machine costs.
Marketing Cost: It includes the cost of making available your products to the customers may incur costs like advertising costs, paying to the content writers, marketers, and graphic designers.
Cost of returned: This is one of the major fees that is added on top of other costs that you have to bear because of the lost profit due to customers returning your products.
Taxes: This is the cost that you have to bear while paying the government as per their respective tax laws.
Other miscellaneous costs: This cost includes other costs that are not specific as above but incur while making products available to the customers. It includes accounting fees, repairs, and insurance costs.
To get the average cost per item, add up all your cost and divide the total cost by the number of the products that you produce in a given time.
Also, you need to calculate the profit percentage that you want to achieve from each piece of product you sell.
When it comes to a successful business, there is always a great wall called customers. Your business is successful if you have customers. But the main question is, how can the customers affect your product pricing?
Well, the toughest decision is what is the customer category that you want to target when it comes to selling your product?
The choice of what customer category you want to target can be arrived at by including the gathered cost data and the assessment of your competitors in your product category.
If you want to get ahead of your competitors, you can always do extensive research and look for the weakness of your competitors’ listings to gain an advantage over their poor product image, poor product review, and product descriptions.
There is always a benefit of getting to know your customer intimately. It will help you to get the correct pricing for profitability. Find out what kind of products other sellers are selling and you can analyze this process. Here are certain types of customers that you can target:
- Quality driven: These types of customers are willing to spend more and more focused on quality.
- Bargain Hunter: This type of customer is always searching for the best price for the given product. They look at various sites and compare them to choose the lowest price for purchasing.
- Splurger: These types of customers are willing to spend their money on whatever they look appealing to at the first sight.
The way you shape your product price should be considered based on the customer habits, tendencies, and predictability of the types of competitors.
Also, there is also a concern that raising the price of your product by a small percentage over the competitors will question the interest of the quality-driven customers if the value offered by your product is equal to that of your competitors.
The only thing you should be stuck at is having a good grasp of your customer. If you can spend enough time to research If you have a good grasp of your target audience, spend some time researching and collecting data from existing and prospective customers.
Keep an eye on what is the highest category of customer that you can target and what is the highest volume of sales you can make to a category of customers.
Pricing your product is not an easy task and it will take time. You have to give in all your time and ideas to correctly price your product. But the plus point of the effort is once you set the price the ecosystem and the branding of your product will be set on autopilot.
One of the major considerations in pricing that is commonly seen in practice is to mark your price as $99.99 instead of $100. It is found that this strategy is making a lot more difference in the eyes of customers. The difference between one cent can make your pricing more competitive and successful.
The product pricing strategy comes right after you choose the product niche. So, you must be careful in choosing the correct product niche by doing product research. You can use ZonBase for finding the best product that is selling on Amazon.